Real Money

Tax Season ETF Guide

Investors should be informed of the different types of ETFs and their tax implications.

NEW YORK ( TheStreet) -- One of the highlights of ETFs that has helped gather popularity for the investment vehicle is their tax efficiency in comparison to mutual funds. Passive management, trading on the secondary market and in-kind redemption by authorized participants are three ways that ETFs can beat mutual funds.

However, that doesn't mean investors can buy ETFs without concern for taxes. There are different types of ETFs, with different tax implications, and investors should be informed before they invest.

This article will provide an overview of how taxes are typically decided for different classes of ETFs in order to give investors a better idea of what to expect. From physically backed commodity ETFs such as SPDR Gold Shares ( GLD) and standard equity funds such as SPDR S&P 500 ( SPY), to more complicated futures-based funds such as United States Natural Gas ( UNG), this guide will give you the ETF-related tax information you need to make better informed investments.

First off, the plain vanilla ETFs that track a basket of equities, such as the popular PowerShares QQQ ( QQQQ) or iShares MSCI Emerging Markets Index ( EEM), are taxed the same way that gains are taxed for equities of individual companies. For example, the capital gains taxes on an investment in Bank of America ( BAC) will be the same as the capital gains taxes for an investment in Financial Select Sector SPDR ( XLF), of which BAC is the largest holding.

This is true of ETFs that track baskets of companies traded on foreign stock exchanges as well.

When an equity ETF makes dividend distributions, these are also taxed in the same way as dividends from a single equity, and investors receive a 1099 form.

Not all ETFs track equities though, and providing easy access to commodities as investments has been a format that has made many such funds popular with investors.

In this fund category, investors should be aware that there are different tax treatments between ETFs that physically invest in a commodity and ETFs that invest in the futures of a commodity.

ETFs that invest in the futures of a commodity, such as United States Oil ( USO), will have 60% of gains taxed at the long-term capital gains rate for an investor's income class and will have 40% of gains taxed at the short-term capital gains rate. This will be the case regardless of how long the ETF is held.